On July 31, 2017, the United States District Court for the District of Connecticut certified a nationwide class of Medicare beneficiaries in an action against HHS regarding whether patients can appeal their status as an outpatient. The plaintiffs allege that HHS’s failure to provide an administrative appeals process for beneficiaries who receive observation services—and who therefore are classified as an outpatient rather than an inpatient—violates the Due Process Clause of the U.S. Constitution, given the impact on the beneficiary’s financial responsibility.

Outpatient services are covered under Medicare Part B, instead of Part A. Not only does this significantly impact a hospital’s reimbursement, but it also increases the beneficiary’s financial responsibility for the hospital stay. Additionally, because Medicare requires an inpatient hospital stay of three days or more for coverage of skilled nursing facility (SNF) services, a patient’s status in the hospital can also determine whether subsequent SNF services are covered by Medicare.

HHS had sought to limit the plaintiff class to beneficiaries who received SNF services because all of the named plaintiffs fell into that category. However, the court certified a class that also includes beneficiaries who were not discharged to a SNF but had additional out-of-pocket expenses for their hospital stay due to their outpatient status.

The underlying issue in this case—the financial impact on beneficiaries given observation rather than inpatient status—has garnered significant public attention and press coverage. This issue has also been intensified as a result of the pressure on hospitals to place patients on observation status due to the significant scrutiny on short inpatient stays from Medicare contractors and other enforcement entities.

To view the court’s order, click here.